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New York Agency & Partnership Law > Partnership Law > Flashcards

Partnership Law Flashcards

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1
Q

What are the five issue areas in partnership law?

A
  1. General partnership formation
  2. Liabilities of general partners to third parties
  3. Rights and liabilities between general partners
  4. General partnership dissolution
  5. Alternative unincorporated business organizations
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2
Q

What is the definition of a general partnership?

A

Association of two or more persons carrying on as co-owners of a business for profit

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3
Q

What formalities are required to establish a GP?

A

NONE!

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4
Q

What is prima facie evidence that a GP exists?

A

The contribution of money or services by two or more persons in return for a share of profits from a business endeavor

(Must be for share of PROFITS, not for compensation, shares, etc.)

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5
Q

What principles apply w/r/t the liability of general partners to third parties?

A

Agency principles apply:
Partners are agents of the partnership, so General Partners are liable:
1. for the torts committed by other partners in the scope of partnership business, AND
2. for each partner’s authorized contracts

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6
Q

What is the general rule for personal liability of partners?

A

Each General Partner is personally liable for all debts of the partnership and for the torts of the other partners committed in the scope of partnership business

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7
Q

Are incoming partners liable for pre-existing partnership debts?

A

No. But any money contributed by new partner to the partnership can be used to pay off existing debts.

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8
Q

What is the extent of liability retention for withdrawing partners?

A

A withdrawing partner remains liable for future partnership debts until (1) actual notice is given to all known creditors and (2) publication is given to all potential creditors that the partner is dissociating from the partnership.

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9
Q

What is general partnership liability by estoppel?

A

Anyone who represents to a third party that a general partnership exists will be liable to that party as if the GP actually existed

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10
Q

What is the relationship between general partners and their partnership?

A

GPs are fiduciaries of each other AND the partnership

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11
Q

As fiduciaries, what duty do general partners owe to each other and the partnership?

A

GPs owe to each other and the partnership a duty of loyalty:

GPs can’t engage in self-dealing;
GPs can’t usurp partnership opportunities; AND
GPs can’t make secret profits at the partnership’s expense

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12
Q

What happens if a general partner breaches his fiduciary duty?

A

The partnership can recover losses caused by the breach and disgorge profits made by the breaching partner due to his breach

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13
Q

What are the three kinds of partnership property that may give rise to issues among partners?

A
  1. Specific partnership assets
  2. Share of partnership profits
  3. Share in partnership mgmt
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14
Q

What are partners’ rights in specific partnership assets?

A

Specific partnership assets are those assets owned by the partnership itself, e.g. land, leases, equipment.

Individual partners may not transfer them to third parties without full authorization of the partnership.

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15
Q

What are partners’ rights in shares of partnership profits?

A

Profits are personal property owned by the individual partners and they may transfer their profit shares to third parties at-will

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16
Q

What are partners’ rights in shares of partnership mgmt?

A

Share in management is an illiquid asset owned only by the partnership itself. Individual partners may not transfer their mgmt rights to third parties without the authorization of the partnership.

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17
Q

What is the test to determine whether the property in the fact pattern is owned by the partnership or by a partner?

A

Determine whose money was used to buy the property

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18
Q

What is the general rule regarding shares of management in a partnership?

A

Absent an agreement to the contrary, each partner is entitled to an EQUAL share of control (vote) in partnership business

i.e., One partner, one vote

19
Q

What is the general rule on salary for partners in a partnership?

A

Absent an agreement, partners get NO SALARY

20
Q

What is the exception to the general rule that partners get no salary?

A

If a partner helps to wind up the partnership business

21
Q

What is the default rule for voting requirements for partnership business?

(Ordinary affairs vs. Fundamental matters)

A

Majority vote governs ordinary affairs

Unanimous consent is required for fundamental partnership matters (e.g., winding-up)

22
Q

What are the default rules on profit and loss sharing?

A

Absent an agreement, profits are shared equally

Absent an agreement, losses are shared like profits

e.g., silent on both - profits and losses shared equally;
agreement says profits shared 60/40 but silent on losses - losses shared 60/40;
agreement says losses shared 60/40 but silent on profits - profits shared 50/50.

23
Q

When is there dissolution of a partnership?

A

The GP dissolves upon any material change in the partnership caused by the death or withdrawal of any general partner

24
Q

What is the real end of the partnership?

It won’t be back…

A

Termination

25
Q

What is the definition of winding-up?

A

The period between dissolution and termination when the remaining partners liquidate the GP’s remaining assets to satisfy creditors

26
Q

What is the partnership’s liability w/r/t winding-up old business?

(3 elements must be satisfied)

A

The partnership and therefore its individual general partners retain liability on all transactions entered into (1) for the purpose of winding up old business by (2) satisfying creditors who (3) existed at the time that the winding-up began

27
Q

What is the partnership’s liability on new business w/r/t winding-up?

A

The partnership and therefore its individual general partners retain liability on all new transactions entered into during the winding-up UNTIL

(1) actual notice is given to known creditors AND
(2) publication notice is given to all potential creditors

28
Q

What is the waterfall for distribution of partnership assets upon winding-up?

A
  1. All outside creditors (third-party non-partner trade creditors) must be paid;
  2. Inside creditors (inside partners) must be paid;
  3. Capital contributions paid by partners must be repaid, or losses covered; AND FINALLY
  4. Any profits and surplus are paid out, in equal ratio unless otherwise specified
29
Q

What is the summary rule for what each partner is entitled to upon termination of the GP?

A

Each partner must be repaid his loans and capital contributions, plus his share of any profits or minus his share of any losses

30
Q

What are the three alternative unincorporated business organizations?

A
  1. Limited Partnerships (LPs)
  2. Registered Limited Liability Partnerships (RLLPs)
  3. Limited Liability Corporations (LLCs)
31
Q

What is the definition of a Limited Partnership?

A

An LP is a partnership with at least one general partner and at least one limited partner

32
Q

What is a general partner?

A

Partner liable for all liabilities of partnership, but also have full rights of control

33
Q

What is a limited partner?

A

Partner not liable for debts and obligations of the LP

Limited partners may not manage the LP business without forfeiting their limited liability status

34
Q

What is the requirement for formation of a Limited Partnership?

A

LP must file with the state a limited partnership certificate that includes all names of GENERAL partners

35
Q

What is a Registered Limited Liability Partnership (RLLP)?

A

An LLP engaged in a professional service, e.g., law, medicine, etc.

36
Q

What is the requirement for formation of a RLLP?

A

RLLP must file with the state a registration certificate designating which profession the partnership will practice

37
Q

What are the liabilities of partners in an RLLP?

A

No partner (even general partners) is liable for the debts or obligations of his RLLP!

38
Q

What is a Limited Liability Corporation?

A

A hybrid of a corporation and a partnership in which owners (MEMBERS) have:

  1. Limited liability as shareholders in the corporation AND
  2. Get the tax benefits of a partnership
39
Q

What are the formation requirements of an LLC in NY?

3

A

Organizers must:

  1. file Articles of Organization with the state;
  2. publish a summary of the Articles in two newspapers for at least six weeks; AND
  3. adopt an Operating Agreement
40
Q

What are the choices members have w/r/t control of their LLC?

A

Member-managed: Members retain full control of the LLC

Manager-managed: Members delegate day-to-day control of the LLC to a team of managers

41
Q

What are the four “limitations” enjoyed by an LLC?

A
  1. Limited liability of Members
  2. Limited tax burden for Members
  3. Limited liquidity
  4. Limited life
42
Q

What is the general rule on limited liquidity w/r/t LLCs?

A

Unless stated otherwise in the Operating Agreement,
A full membership interest may not be transferred to another person without the consent of a majority of the membership interest (i.e. majority of control, not majority of members)

43
Q

What is the general rule on limited life w/r/t LLCs?

A

Unless stated otherwise in the Operating Agreement,

The LLC will dissolve upon the vote of a majority of membership interest

New York Agency & Partnership Law (3 decks)

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